Pricing of IPOs

 Companies eligible to make public issue can freely price their

equity shares or any security.

 Fixed Price Method

 Book Building Method
Contd…

Fixed Price Method

 It is a traditional method of pricing the IPOs.

 Here the issuer and the merchant banker agree on the issue price before
making the actual issue and

 The investors are required to fill in an application form at this price and
subscribe to the issue.
Contd…
 Fixed price method is a cautious and
conservative approach in pricing the issue,
so that the issue is fully subscribed.

 Underwriters also do not like the issue to

devolve on them and hence favour
conservative pricing of the issue.

 For these practical reasons, the issue price in

the case of traditional fixed price method
generally errors on the lower side and,
therefore, in the investor’s favour.